Whether the economy improves or not may be a matter of confidence

How do you feel about the possible economic recovery? Hopeful and sanguine or worried and fretful? Either way, you are not alone. The consumer confidence numbers are in for September and things look gloomy — and brighter. Those infamous consumer confidence indices are widely covered in the media, but what do they really mean for the nation? And for us here in Northern New York?

The theory of a consumer confidence index is simple. We try to measure our confidence in the economy over time. If we are confident that times will get better soon, we are more likely to spend money now. If we are not confident, we keep our wallets in our pockets.

This theory causes businesses and government agencies to watch for rising consumer confidence as an indicator that good times are coming. If the index is high, it is time to expand the plant, rehire some of the workers we laid off, and borrow some money from the bank for a fresh advertising campaign. High consumer confidence numbers can boost short-term stock prices and bring smiles to incumbent politicians at election time.

The trick can be making sense of all those numbers. There are actually several different and conflicting consumer confidence indices from different sources and they seldom all agree.

The Rassmussen Consumer Index is updated daily from a telephone survey of 500 adults. Its numbers for late September are down slightly from those in August, but are still up 22 points from the beginning of the year. Rassmussen seems to think we are guardedly optimistic, but perhaps a little concerned going into the holiday shopping season.

The Gallup Consumer Survey, however, has us at a 20-month high in September and reports that we are definitely expecting better times ahead. The Consumer Sentiment Index from the University of Michigan agrees, reporting a score of 73.5 (out of 100 — indexed to 1964) in September — up from an August score of 65.7 and the highest level we have reached since August of last year. The university's survey also covers 500 adults but it asks a set of 50 questions that study us more closely than most other surveys.

Of course, the real heavyweight in the consumer index business istheConsumer Confidence Index. The CCI is produced monthly by a private economics analysis group called the Conference Board. It is based on a survey of 5,000 people who are each asked five questions about their perception of the economy and their expectations for the next six months. The CCI is reported on a scale that is set with 1984 as the 100 point benchmark. That year was chosen because it was perceived as a very boring year with few consumer confidence peaks or valleys. You may remember 1984 differently, but the experts seem sure of themselves.

The CCI is widely quoted by the media and politicians, and the number for September was not good. The CCI was 53.1 for September, down from 54.5 in August. The CCI was well over 100 throughout much of the early years of this decade, but it hit an all-time low of 25 in February. When the bad news came out last month, the media widely reported the imminent collapse of the recovery and the withering of those poor tiny green shoots in an early frost. Gloom prevailed.

In fact, several scholars are quick to say that the CCI and other indices, even when they do agree with one another, have little value in predicting stock prices or other economic activities in the medium to long term. Even if we are confident that things will get better soon, we might not have enough money left to start buying things.

It is impossible to break out the confidence numbers for a region like ours from these national measurements, so I cannot say with any confidence that we are more or less confident than other Americans. The only indicator of our confidence levels comes from the 2009 Annual Survey of the Community conducted last March/April by the Center for Community Studies at Jefferson Community College. It asked some of the same type of questions asked by the CCI and got some similar answers.

In 2007, 25.2 percent of the respondents in our community reported that they thought the economy was getting worse. In 2008, that number rose to 45 percent, and this year it was at an all time high of 71.6 percent. The trends for the question about the availability of good jobs showed a similar change over time. Not surprisingly, we were extremely pessimistic about the economy and its future last April. Perhaps all those down-trending consumer confidence indices depressed us.

Even if we do think things will get better, it doesn't mean we will go out and spend profligately, buy a gas-guzzling SUV and apply for a new line of credit. Nor does it mean that banks and businesses will be so quick to extend that credit if we do ask. This recession seems to have reminded many Americans of the value of saving and the risks of uncontrolled credit.

In spite of the economists' demands that we get out there and resume spending, we don't seem to feel any moral obligation to rescue banks and businesses by blowing our net worth on things we might not really need. Those same economists were complaining two years ago that we were spending too much and saving too little. I wish they would make up their minds.

Here is what I think we should do. First — if anyone gets a call from a consumer confidence pollster, tell him or her that you think everything will be wonderful soon. If enough of us do that, the index will rise, the media will report a new green shoot, and we can help boost the economy in the short term without actually having to spend anything. If enough of us say it will happen, it probably will.

Second, let's try to determine how we in Northern New York really feel about the future of our economy. I would love to see a regular survey from the Center for Community Studies or one of the other universities in our region, but I will settle for something less scientific. If you have some strong opinions and ideas about our economy and what things will look like in a year or more, please send me an e-mail. I will collect those comments and try to publish them in a future column.

If our local businesses and governments have a good idea of how we feel about the future, they might be able to do a better job of planning for that future. We have a large and experienced farming sector and lots of scenic natural landscape in the north country. Surely we can find a green shoot or two somewhere.

Greg Gardner is an associate professor of business at SUNY Potsdam. His column on business issues in the north country is published monthly in Money Matters. E-mail him at ggardner@wdt.net.